Hewlett-Packard's plans for EDSSeptember 11, 2008: 8:00 AM ET
Now that Hewlett-Packard has officially purchased outsourcing giant EDS for $13.9 billion, who's in charge of the services strategy?
Officially, EDS is now an HP business unit based in Plano, Texas, and its CEO, Ron Rittenmeyer, now reports directly to HP (HPQ) CEO Mark Hurd. It's a setup that suggests EDS will continue to call many of its own shots, while benefiting from HP's economies of scale in functions like human resources, finance and IT.
When HP announced the EDS acquisition deal in May, that structure caught a number of observers by surprise. Some had expected EDS would fall under the command of HP's enterprise technology group (also known as the Technology Solutions Group), which has blossomed into a growth and profit machine under the leadership of executive VP Ann Livermore.
Instead, in his first public comments about the deal, Hurd took a deferential tone when talking about EDS's services legacy. "Frankly, EDS is more mature and more sophisticated in many of the processes they bring to market than we are," he told investors.
But a clearer picture may emerge on Monday, when Hurd, Livermore, Rittenmeyer and other HP executives brief analysts on their post-merger plans for EDS. Don't be surprised if beginning Monday, the EDS crew in Plano appears to be on a somewhat shorter leash than they did a few months ago.
Why? HP always had too much at stake to let EDS do its own thing. EDS is a sprawling services business with a bloated cost structure and more than 100,000 employees – making it cumbersome enough to weigh down HP's profits and sink its stock price unless executives can tame it. A big reason HP felt confident enough to do the deal in the first place is that executives felt they've gotten good enough at finding savings (and presumably issuing pink slips) that they can take at least $750 million in costs out of EDS.
Livermore could be a significant player in that process. While on paper EDS will handle the outsourcing business while Livermore's group provides technology backup, there's more to it than that. Livermore was more than a passive observer in the EDS purchase – she was a major catalyst for the deal, and along with Hurd and chief strategy officer Shane Robison, she was among its chief architects. Officially or not, expect her to be among the folks behind the scenes making sure it works.
In fact it was Livermore who originally got the ball rolling on the EDS deal last fall. Things heated up after she had to pass on bidding for four multi-billion-dollar IT outsourcing deals because HP didn't have the resources to do the work. "Customers wanted to buy more from HP, and yet I didn't have a big enough services organization to respond to them," Livermore told me. The solution, it seemed, was to consider buying a company to beef up HP's arsenal.
So Livermore huddled with Hurd and Chief Strategy Officer Shane Robison to take a closer look at EDS. Later, Livermore spent hours with Hurd on the patio outside his office, considering big questions - like how an acquisition might be done and what customers would think - and even smaller ones, like how much money HP could save by merging its billing and invoice system with EDS's.
Livermore said that after streamlining HP's homegrown services business, she was comfortable pursuing EDS. "That was what I wanted to do first, to make sure I had a strong business to integrate something into," Livermore told me in May. The implication here: even if EDS won't technically get folded into HP's smaller services organization, that's what's happening culturally.
Considering all that, it would be silly to imagine that after helping to craft the deal and serving as Hurd's sounding board, Livermore will simply step back and take a supporting role. Instead, based on summer chatter in online comment forums about layoffs at EDS, I expect HP to say on Monday that EDS has continued to reduce a sizable chunk of its U.S. workforce (with more reductions coming). And I also expect to hear that EDS is working very closely with Livermore's group to drum up the large-scale consulting deals that HP craves.
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